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Planning your Tax

In South Africa, every individual, every partner in a partnership, and every company and close corporation which derives a taxable income, is liable to pay tax. The Income Tax Act of 1962 requires individuals to pay tax at progressively increasing rates until the maximum of 40% is reached, while companies and close corporations pay a flat rate of 28%.
If a company or close corporation pays a dividend, STC (secondary tax on companies) of 15% is payable.  Special rules apply to mining, insurance and farming operations; you can get information on these from the Income Tax Act or from a local Receiver of Revenue office.
Changes to the South African tax system are expected in future, following a number of submissions by the Katz Commission. It is therefore advisable to approach the Receiver or an auditor/accountant for the most up-to-date information on the Income Tax Act. The Act is also available from the Government printer, and tax guides can be bought from most bookshops.
Two taxes are applicable to the small business: income tax and value-added tax.

Income Tax
Income tax is assessed on the taxable income earned in any one tax year. The taxable income of a company and close corporation is calculated the same way as for an individual: by deducting from gross income any expense (apart from the capital expense) incurred in the production of income during a given tax year. Income tax returns are submitted to the Receiver of Revenue each year for assessment, which in the case of a new business may sometimes be for a period of less than a full year.
Financial statements are prepared up until the last day of February, unless the Receivers of Revenue has agreed to some other date. Every company and close corporation is required to appoint someone other than its auditor as a public officer to represent it for tax purposes.
Companies and close Corporations, and for that matter, individuals who are classified as provisional taxpayers, are required to make two provisional tax payments towards their tax liability in each year of assessment. Provisional taxpayers who earn a taxable income which exceeds R56 000 (in the case of individuals) and R30 000 (in the case of companies and close corporations) may make third 'voluntary' provisional payment or 'top-up' payment.
Voluntary means that no penalties can be imposed if the payment is not made, but that interest is payable on the amount unpaid by specified date. Interest may be charged on the difference between the amount finally assessed and the total of tax paid in respect of the year. The first payment must be made six months after the start of the financial year, the second at the end of it, and the third six month after the end of it.

Secondary tax on companies
Known as STC, this is a tax on companies (not a withholding on dividends), based on dividends declared or deemed to have been declared. After the latest tax laws, it is now called withholding tax, which means that it is paid by the receiver of the dividend, but the company paying the dividend “withholds” the tax and pay it over to the Receiver of Revenue on behalf of the shareholder. The current rate is 15% of the amount in declared dividend payable to shareholders/members. This tax applies equally to close corporations and companies.

Income tax deductions
The following are some of the expenses that can be deducted from taxable income. A more complete list can be obtained from your accountant or the Receiver of Revenue.

Expenditure that cannot be deducted
The following expenses cannot be deducted from total taxable income:

  • Private, personal and domestic expenditure;
  • Expenditure  which is recoverable from a third party, such as an insurance claim;
  • Income tax and interest or penalties on this amount;
  • Capital expenditure.

 

What is an assessed loss?
In a tax year, if total deduction exceeds total income, the difference becomes an assessed loss. This can be carried forward into ensuring tax year, providing the company remains in business, until such time as the loss is cancelled out.

Value-added tax (VAT)
Value-added tax is a tax on consumption and is currently changed at 14%. The principle operates as follows:
Transactions subject to Standard-rated VAT:                                        

  • Supplies of goods and services made by a vendor in the course of any enterprise carried on by him
  • Where goods manufactured in the Republic (subject to excise duty) are supplied at a price excluding excise duty, VAT is payable on the supply of the goods

 

  • Deemed supplies made by a vendor
  • Imports into the country made by any person

 

  • Supply of imported services to any person

 

Transactions subject to Zero-rated VAT:

A taxable supply made by a vendor which is taxed at the rate of 0% - no output tax is actually charged.

However, the vendor may claim input tax on all goods and services acquired that includes VAT. A vendor is still obliged to retain documentary evidence acceptable to SARS as proof of the fact that he is entitled to zero rate supplies.

  • Export of all goods – this means that the goods should be delivered to a recipient in an export country
  • Export of second-hand goods is not zero-rated if the exporter has previously deducted input tax with the purchase of these goods (if he claimed the input tax on these second-hand goods and then sell it to someone overseas, he must account for output tax as well).

 

  • Leasing of goods used in an export country
  • Disposal of a going-concern. This means that the seller and buyer of a business are both registered for VAT and the whole business is sold, no output VAT is paid and no input VAT is claimed

 

  • Supply of gold and Krugerrands
  • Petrol and fuel (fuel purchased at garage as well as any by-product of fuel)

 

  • Basic foodstuffs
  • Any transport (national or international)

 

  • The arranging of transport or insurance on transport
  • Services physically rendered outside the Republic

 

  • Subsidies received by welfare organisations
  • Subsidies received from the State

 

Transactions subject to Exempt supplies VAT:

No VAT is levied on income, BUT also, no VAT can be claimed on purchases (even if there is VAT on these expenses). This increases his costs.

  • Financial services such as:
  • The lending of money
  • Provision of long-term insurance
  • Provision of retirement- and medical aid benefits

 

  • Exchange of currency
  • The issue of letters of credit by banks

 

  • Issue of debt security or unit trusts
  • Sale of futures contracts

 

  • Activities of any fund promoting horse-racing
  • Supplies by associations not for gain (example: cake sales by welfare organisations)

 

  • Letting of residential accommodation (place of residence for natural persons – house, flat or apartment for longer than 45 days continuously)
  • Levies paid to Body Corporates and Share Block Companies

 

  • Transportation of passengers
  • Education

 

 

INPUT VAT

Required documentation to have in its possession:

  • Applicable, original tax invoice in the name of the vendor, indicating the VAT number and the VAT amount
  • In case of importation: the bill of entry from Customs and Excise

 

  • Second-hand goods: the contract/invoice for the goods

Denial of input tax deduction:

  • Entertainment (provision of any food, beverages, accommodation or hospitality and recreation to employees or clients) except if the vendor is a restaurant or hotel in the ordinary course of business.
  • Club subscriptions (membership fees for sporting or recreation)

 

  • Motor cars, including:
  • Vehicles, station wagons, minibus, double cab
  • Motor vehicles that are excluded are:
  • Carrying 16 persons
  • Mass of 3500kg and more
  • Caravans and ambulances
  • Delivery vehicles
  • A vendor selling vehicles

 

  • Bad debts written off (if previously VAT was not charged on the sale)

Prescribed details required on a tax invoice:

  • The words “tax invoice” in a prominent place

 

  • Name, address and registration number of the supplier
  • Name and address and VAT number of the recipient

 

  • Individual serialised number and the date upon which the tax invoice is issued
  • Description of the goods and services supplied

 

  • Quantity or volume of the goods or services supplied
  • The value excluding VAT of the supply

 

  • The VAT amount and
  • The value including VAT of the supply

 

 

 

Prescribed details required on a credit note:

  • The words “credit note” in a prominent place

 

  • Name, address and registration number of the supplier
  • Name and address and VAT number of the recipient

 

  • Individual serialised number and the date upon which the credit note is issued
  • Description of the goods and services supplied to identify the transaction to which the credit note refers

 

  • Amount by which the value of the previous supply has been reduced
  • Reason for the credit note being issued

 

Copies of documents:
           
The Act prohibits the issue of more than one tax invoice for each taxable supply.
It needs to be stamped with the word “copy”. A facsimile or copy of an original document is not accepted.

As tax has become such a specialised field, we advise that you seek the services of a professional accountant in this regard. Call us today for your free quote.


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